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Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Full Document:  

Act current to 2024-02-06 and last amended on 2024-01-22. Previous Versions

PART IIncome Tax (continued)

DIVISION BComputation of Income (continued)

SUBDIVISION EDeductions in Computing Income (continued)

 [Repealed, 2013, c. 40, s. 29]

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 60.11
  • 2013, c. 40, s. 29

Marginal note:Refund of undeducted past service AVCs

  •  (1) There may be deducted in computing a taxpayer’s income for a taxation year an amount equal to the total of

    • (a) where the taxation year ends before 1991, the total of all amounts each of which is that portion of an amount paid to the taxpayer before 1991 and included by reason of subparagraph 56(1)(a)(i) or paragraph 56(1)(h) or 56(1)(t) in computing the taxpayer’s income for the year or a preceding taxation year that can reasonably be considered to be a refund of additional voluntary contributions made by the taxpayer before October 9, 1986 to a registered pension plan for the taxpayer’s benefit in respect of services rendered by the taxpayer before the year in which the contributions were made, to the extent that the contributions were not deducted in computing the taxpayer’s income for any taxation year; and

    • (b) the least of

      • (i) $3,500,

      • (ii) the total of all amounts each of which is an amount included after 1986 by reason of subparagraph 56(1)(a)(i) or paragraph 56(1)(d.2), 56(1)(h) or 56(1)(t) in computing the taxpayer’s income for the year, and

      • (iii) the balance of the annuitized voluntary contributions of the taxpayer at the end of the year.

  • Definition of balance of the annuitized voluntary contributions

    (2) For the purposes of subsection 60.2(1), balance of the annuitized voluntary contributions of a taxpayer at the end of a taxation year means the amount, if any, by which

    • (a) such part of the total of all amounts each of which is an additional voluntary contribution made by the taxpayer to a registered pension plan before October 9, 1986 in respect of services rendered by the taxpayer before the year in which the contribution was made, to the extent that the contribution was not deducted in computing the taxpayer’s income for any taxation year, as may reasonably be considered as having been

      • (i) used before October 9, 1986 to acquire or provide an annuity for the taxpayer’s benefit under a registered pension plan or registered retirement savings plan, or

      • (ii) transferred before October 9, 1986 to a registered retirement income fund under which the taxpayer was the annuitant (within the meaning assigned by subsection 146.3(1)) at the time of the transfer

    exceeds

    • (b) the total of all amounts each of which is

      • (i) an amount deducted under paragraph 60.2(1)(b) in computing the taxpayer’s income for a preceding taxation year, or

      • (ii) an amount deducted under paragraph 60.2(1)(a) in computing the taxpayer’s income for the year or a preceding taxation year, to the extent that the amount can reasonably be considered to be in respect of a refund of additional voluntary contributions included in determining the total under paragraph 60.2(2)(a).

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1990, c. 35, s. 6

Marginal note:Payment made as consideration for income-averaging annuity

  •  (1) In computing the income for a taxation year of an individual resident in Canada, there may be deducted an amount equal to the lesser of

    • (a) such amount as the individual may claim, not exceeding the total of amounts each of which is a single payment

      • (i) made by the individual in the year or within 60 days after the end of the year as consideration for an income-averaging annuity contract of the individual, and

      • (ii) in respect of which no amount has been deducted in computing the individual’s income for the immediately preceding taxation year, and

    • (b) the amount, if any, by which the total of

      • (i) the remainder obtained when the total of the amounts deductible in computing the individual’s income for the year by reason of paragraphs 60(j) and 60(l) of this Act and paragraph 60(k) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, is deducted from the total of amounts described in subsection 61(2) in respect of the individual for the year,

      • (ii) the amount, if any, by which the amount determined under paragraph 3(b) in respect of the individual for the year exceeds the total of amounts each of which is an allowable business investment loss of the individual for the year,

      • (iii) the individual’s income for the year from the production of a literary, dramatic, musical or artistic work,

      • (iv) the individual’s income for the year from the individual’s activities as an athlete, a musician or a public entertainer such as a theatre, motion picture, radio or television artist, and

      • (iv.1) the amount, if any, by which the amount included in computing the income of the individual for the year by virtue of section 59 exceeds the total of amounts deducted in computing the individual’s income for the year under sections 64, 66, 66.1, 66.2 and 66.4 and under section 29 of the Income Tax Application Rules,

      exceeds

      • (v) the total of amounts each of which is the annual annuity amount of the individual in respect of an income-averaging annuity contract in respect of the consideration for which any amount has been deducted under this subsection in computing the individual’s income for the year.

  • Marginal note:Idem

    (2) For the purposes of subsection 61(1), an amount described in this subsection in respect of an individual for a taxation year is any following amount:

    • (a) any single payment received by the individual in the year

      • (i) out of or under a superannuation or pension fund or plan

        • (A) on the death, withdrawal or retirement from employment of an employee or former employee,

        • (B) on the winding-up of the fund or plan in full satisfaction of all rights of the payee in or under the fund or plan, or

        • (C) to which the payee is entitled by virtue of an amendment to the plan although the payee continues to be an employee to whom the plan is applicable,

      • (ii) on retirement as an employee in recognition of long service and not made out of or under a superannuation fund or plan,

      • (iii) pursuant to an employees profit sharing plan in full satisfaction of all the individual’s rights in or under the plan, to the extent that the amount thereof is required to be included in computing the individual’s income for the year in which the payment was received, or

      • (iv) pursuant to a deferred profit sharing plan on the death, withdrawal or retirement from employment of an employee or former employee, to the extent that the amount thereof is required to be included in computing the individual’s income for the year;

    • (b) a payment or payments made by an employer to the individual as an employee or former employee on or after retirement in respect of loss of office or employment, if made in the year of retirement or within one year after that year;

    • (c) a payment or payments paid to the individual as a death benefit, if paid in the year of death or within one year after that year;

    • (d) any amount included in computing the individual’s income for the year by virtue of subsection 146(8), to the extent that the amount is a refund of premiums, as defined by section 146, under a registered retirement savings plan received by the individual under the plan on or after the death of the person who was, immediately before the person’s death, the annuitant thereunder;

    • (e) any amount included in computing the individual’s income for the year by virtue of section 13, 14 or 23, subsection 28(4) or 28(5) or paragraph 106(2)(a) of this Act or subparagraph 56(1)(a)(viii) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952;

    • (f) any amount deemed by section 7 to be a benefit received by the individual in the year by virtue of the individual’s employment;

    • (g) the amount, if any, by which any amount received by the individual in the year as or on account of a prize for achievement in a field of endeavour ordinarily carried on by the individual exceeds $500;

    • (h) any amount included in computing the individual’s income for the year by virtue of subsection 146.2(6) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952;

    • (i) a payment made in the year to an individual by virtue of paragraph 51(2)(b) of the Judges Act;

    • (j) except where the individual claimed a deduction under paragraph 23(3)(a) of the Income Tax Application Rules in computing the individual’s income for the year, any amount included in computing that income by virtue of paragraph 23(3)(c) of that Act; and

    • (k) where the individual ceased to be a member of a partnership in the year or the preceding year and paragraph 34(a) applied in computing the individual’s income therefrom in the preceding year, the amount included in the individual’s income for the year by virtue of paragraph 3(a) to the extent that, having regard to all the circumstances including the proportion in which the members of the partnership have agreed to share the profits of the partnership, it can reasonably be considered to be in respect of the individual’s share of the work in progress of the partnership at the time the individual ceased to be a member thereof, if, during the remainder of the year in which the individual ceased to be a member and in the following year, the individual did not

      • (i) become employed in the business that had been carried on by the partnership,

      • (ii) carry on a business that is a profession, or

      • (iii) become a member of a partnership that carries on a business that is a profession.

  • Marginal note:Definitions

    (4) In this section,

    annual annuity amount

    annual annuity amount of an individual in respect of an income-averaging annuity contract means the total of the equal payments described in paragraph (c) of the definition income-averaging annuity contract in this subsection that, under the contract, are receivable by the individual in the twelve month period commencing on the day that the first such payment under the contract becomes receivable by the individual; (montant annuel de la rente)

    income-averaging annuity contract

    income-averaging annuity contract of an individual means a contract between the individual and a person licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada an annuities business or a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee, under which

    • (a) in consideration of a qualifying payment as consideration under the contract, that person agrees to pay to the individual, commencing at a time not later than 10 months after the individual has made the qualifying payment,

      • (i) an annuity to the individual for the individual’s life, with or without a guaranteed term not exceeding the number of years that is the lesser of

        • (A) 15, and

        • (B) 85 minus the age of the individual at the time the annuity payments commence, or

      • (ii) an annuity to the individual for a guaranteed term described in subparagraph (i), or

    • (b) in consideration of a single payment in respect of the individual’s 1981 taxation year, other than a qualifying payment, made by the individual as consideration under the contract, that person makes all payments provided for under the contract to the individual before 1983

    and under which no payments are provided except the single payment by the individual and,

    • (c) in respect of a contract referred to in paragraph (a), equal annuity payments that are to be made annually or at more frequent periodic intervals, or

    • (d) in respect of a contract referred to in paragraph (b), payments described therein to the individual; (contrat de rente à versements invariables)

    qualifying payment

    qualifying payment means a single payment made before November 13, 1981 (or made on or after November 13, 1981 pursuant to an agreement in writing entered into before that date to make such a payment in respect of the individual’s 1981 taxation year, or pursuant to an arrangement in writing made before that date to have funds withheld before 1982 from any of the individual’s remuneration described in paragraph 61(1)(b) earned or received before November 13, 1981 and paid by or on behalf of the individual). (paiement admissible)

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1970-71-72, c. 63, s. 1 “61”
  • 1973-74, c. 14, s. 17, c. 30, s. 5
  • 1974-75-76, c. 26, s. 32
  • 1976-77, c. 4, s. 18
  • 1977-78, c. 1, ss. 26, 101(F)
  • 1979, c. 5, s. 18
  • 1980-81-82-83, c. 48, s. 31, c. 140, s. 30

Marginal note:Where income-averaging annuity contract ceases to be such

  •  (1) Where a contract that was at any time an income-averaging annuity contract of an individual has, at a subsequent time, ceased to be an income-averaging annuity contract otherwise than by virtue of the surrender, cancellation, redemption, sale or the disposition thereof, the individual shall be deemed to have received at that subsequent time as proceeds of the disposition of an income-averaging annuity contract an amount equal to the fair market value of the contract at that subsequent time and to have acquired the contract, as another contract not being an income-averaging annuity contract, immediately thereafter at a cost to the individual equal to that fair market value.

  • Marginal note:Where annuitant dies and payments continued

    (2) Where an individual who was an annuitant under an income-averaging annuity contract has died and payments are subsequently made under that contract, the payments shall be deemed to be payments under an income-averaging annuity contract.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1976-77, c. 4, s. 19

Marginal note:Reserve for debt forgiveness for resident individuals

 There may be deducted in computing the income for a taxation year of an individual (other than a trust) resident in Canada throughout the year such amount as the individual claims not exceeding the amount determined by the formula

A + B - 0.2(C - $40,000)

where

A
is the amount, if any, by which
  • (a) the total of all amounts each of which is an amount that, because of the application of section 80 to an obligation payable by the individual (or a partnership of which the individual was a member) was included under subsection 80(13) in computing the income of the individual for the year or the income of the partnership for a fiscal period that ends in the year (to the extent that, where the amount was included in computing income of a partnership, it relates to the individual’s share of that income)

exceeds

  • (b) the total of all amounts deducted because of paragraph 80(15)(a) in computing the individual’s income for the year,

B
is the amount, if any, included under section 56.2 in computing the individual’s income for the year, and
C
is the greater of $40,000 and the individual’s income for the year, determined without reference to this section, paragraph 20(1)(ww), section 56.2, paragraph 60(w), subsection 80(13) and paragraph 80(15)(a).
  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1995, c. 21, s. 20
  • 2000, c. 19, s. 8

Marginal note:Deduction for insolvency with respect to resident corporations

  •  (1) There shall be deducted in computing the income for a taxation year of a corporation resident in Canada throughout the year that is not exempt from tax under this Part on its taxable income, the lesser of

    • (a) the amount, if any, by which

      • (i) the total of all amounts each of which is an amount that, because of the application of section 80 to a commercial obligation (in this section having the meaning assigned by subsection 80(1)) issued by the corporation (or a partnership of which the corporation was a member) was included under subsection 80(13) in computing the income of the corporation for the year or the income of the partnership for a fiscal period that ends in the year (to the extent that the amount, where it was included in computing income of a partnership, relates to the corporation’s share of that income)

      exceeds

      • (ii) the total of all amounts deducted because of paragraph 80(15)(a) in computing the corporation’s income for the year, and

    • (b) the amount determined by the formula

      A - 2(B - C - D - E)

      where

      A
      is the amount determined under paragraph 61.3(1)(a) in respect of the corporation for the year,
      B
      is the total of
      • (i) the fair market value of the assets of the corporation at the end of the year,

      • (ii) the amounts paid before the end of the year on account of the corporation’s tax payable under this Part or any of Parts I.3, II, VI and XIV for the year or on account of a similar tax payable for the year under an Act of a province, and

      • (iii) all amounts paid by the corporation in the 12-month period preceding the end of the year to a person with whom the corporation does not deal at arm’s length

        • (A) as a dividend (other than a stock dividend),

        • (B) on a reduction of paid-up capital in respect of any class of shares of its capital stock,

        • (C) on a redemption, acquisition or cancellation of its shares, or

        • (D) as a distribution or appropriation in any manner whatever to or for the benefit of the shareholders of any class of its capital stock, to the extent that the distribution or appropriation cannot reasonably be considered to have resulted in a reduction in the amount otherwise determined for C in respect of the corporation for the year,

      C
      is the total liabilities of the corporation at the end of the year (determined without reference to the corporation’s liabilities for tax payable under this Part or any of Parts I.3, II, VI and XIV for the year or for a similar tax payable for the year under an Act of a province) and, for this purpose,
      • (i) the equity and consolidation methods of accounting shall not be used, and

      • (ii) subject to subparagraph 61.3(1)(b)(i) and except as otherwise provided in this description, the total liabilities of the corporation shall

        • (A) where the corporation is not an insurance corporation, a federal credit union or a bank to which clause (B) or (C) applies and the balance sheet as of the end of the year was presented to the shareholders of the corporation and was prepared in accordance with generally accepted accounting principles, be considered to be the total liabilities shown on the balance sheet,

        • (B) where the corporation is a bank, a federal credit union or an insurance corporation that is required to report to the Superintendent of Financial Institutions and the balance sheet as of the end of the year was accepted by the Superintendent, be considered to be the total liabilities shown on that balance sheet,

        • (C) where the corporation is an insurance corporation that is required to report to the superintendent of insurance or other similar officer or authority of the province under whose laws the corporation is incorporated and the balance sheet as of the end of the year was accepted by that officer or authority, be considered to be the total liabilities shown on that balance sheet, and

        • (D) in any other case, be considered to be the amount that would be shown as total liabilities of the corporation at the end of the year on a balance sheet prepared in accordance with generally accepted accounting principles,

      D
      is the total of all amounts each of which is the principal amount at the end of the year of a distress preferred share (within the meaning assigned by subsection 80(1)) issued by the corporation, and
      E
      is 50% of the amount, if any, by which
      • (i) the amount that would be the corporation’s income for the year if that amount were determined without reference to this section and section 61.4

      exceeds

      • (ii) the amount determined under paragraph 61.3(1)(a) in respect of the corporation for the year.

  • Marginal note:Reserve for insolvency with respect to non-resident corporations

    (2) There shall be deducted in computing the income for a taxation year of a corporation that is non-resident at any time in the year, the lesser of

    • (a) the amount, if any, by which

      • (i) the total of all amounts each of which is an amount that, because of the application of section 80 to a commercial obligation issued by the corporation (or a partnership of which the corporation was a member) was included under subsection 80(13) in computing the corporation’s taxable income or taxable income earned in Canada for the year or the income of the partnership for a fiscal period that ends in the year (to the extent that, where the amount was included in computing income of a partnership, it relates to the corporation’s share of the partnership’s income added in computing the corporation’s taxable income or taxable income earned in Canada for the year)

      exceeds

      • (ii) the total of all amounts deducted because of paragraph 80(15)(a) in computing the corporation’s taxable income or taxable income earned in Canada for the year, and

    • (b) the amount determined by the formula

      A - 2(B - C - D - E)

      where

      A
      is the amount determined under paragraph 61.3(2)(a) in respect of the corporation for the year,
      B
      is the total of
      • (i) the fair market value of the assets of the corporation at the end of the year,

      • (ii) the amounts paid before the end of the year on account of the corporation’s tax payable under this Part or any of Parts I.3, II, VI and XIV for the year or on account of a similar tax payable for the year under an Act of a province, and

      • (iii) all amounts paid in the 12-month period preceding the end of the year by the corporation to a person with whom the corporation does not deal at arm’s length

        • (A) as a dividend (other than a stock dividend),

        • (B) on a reduction of paid-up capital in respect of any class of shares of its capital stock,

        • (C) on a redemption, acquisition or cancellation of its shares, or

        • (D) as a distribution or appropriation in any manner whatever to or for the benefit of the shareholders of any class of its capital stock, to the extent that the distribution or appropriation cannot reasonably be considered to have resulted in a reduction of the amount otherwise determined for C in respect of the corporation for the year,

      C
      is the total liabilities of the corporation at the end of the year (determined without reference to the corporation’s liabilities for tax payable under this Part or any of Parts I.3, II, VI and XIV for the year or for a similar tax payable for the year under an Act of a province), determined in the manner described in the description of C in paragraph 61.3(1)(b),
      D
      is the total of all amounts each of which is the principal amount at the end of the year of a distress preferred share (within the meaning assigned by subsection 80(1)) issued by the corporation, and
      E
      is 50% of the amount, if any, by which
      • (i) the amount that would be the corporation’s taxable income or taxable income earned in Canada for the year if that amount were determined without reference to this section and section 61.4

      exceeds

      • (ii) the amount determined under paragraph 61.3(2)(a) in respect of the corporation for the year.

  • Marginal note:Anti-avoidance

    (3) Subsections 61.3(1) and 61.3(2) do not apply to a corporation for a taxation year where property was transferred in the 12-month period preceding the end of the year or the corporation became indebted in that period and it can reasonably be considered that one of the reasons for the transfer or the indebtedness was to increase the amount that the corporation would, but for this subsection, be entitled to deduct under subsection 61.3(1) or 61.3(2).

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1995, c. 21, s. 20
  • 1998, c. 19, s. 101
  • 2010, c. 12, s. 2108
 

Date modified: